Second Round Of Negotiated Rulemaking On General Provisions Concludes

The Department of Education held the second three-day session of negotiating rulemaking on Title IV general provisions last week. The Department provided draft proposed regulatory language for negotiators to consider during this round of negotiations. Negotiators reached tentative agreement on five of the 19 agenda items discussed. This article provides a summary of the main points discussed during the latest rounds of negotiations for the following topics:

Consistent Enrollment Status Definitions for All Title IV Programs
Treatment of Term-based Programs with Multiple Start Dates for Federal Pell Grants
Proration for Federal Pell Grant Programs Using Clock or Credit Hours Without Terms
Recovery of Funds Not Claimed by Student or Parent
Electronic Disbursements, Use of Stored-Value Cards, and Issuing a Check
Definition of Excess Cash and Excess Cash Allowances
Late, Late Disbursements
Single Disbursement Provision for Perkins and FSEOG
Post-withdrawal Disbursement
Minor Prior-Year Expenses

A second article on General Provisions negotiated rulemaking will be posted later this week, summarizing the following topics:

Nonterm Credit Hour Programs - Use of Completion of Half the Weeks of Instructional Time for Timing of Loan Disbursements
Require Institutions to Use Consistent Disbursement Periods for Title IV Programs Where Allowed Under Law
Determining Loan Eligibility for Nonstandard Term Programs
Treatment of FFEL and Direct Loan Funds When a Student Withdraws Before Beginning Class
Minimum Period for Certifying a Loan
Consistent Definitions for Undergraduate Student, Graduate or Professional Student and First-Professional Degree for All Title IV Programs
Definition of Independent Study

A third negotiated rulemaking session on General Provisions regulations is scheduled to begin on April 18.

Consistent Enrollment Status Definitions for All Title IV Programs

In the previous round of negotiated rulemaking (negreg), negotiators considered whether a consistent definition of undergraduate enrollment terms should be stipulated in regulation and applied to all Title IV programs. While "full time" is currently defined in the General Provisions, the definitions of other less than full-time statuses are defined in the individual program regulations.

For example, an undergraduate student is considered full time when taking at least 12 credit hours, although an institution can set a higher requirement. Part-time statuses for Pell Grant may be based on either the regulatory minimum of 12 credits or the higher standard in institution's definition of full time, while part-time statuses for the FFEL and Direct Loan programs must be based on the institution's definition of full time. Thus, at an institution that defines full time as 15 credits, a student taking 6 credits may be considered half time for Pell Grant but must be considered less than half time for loans.

Proposed regulatory language has been provided to update and consolidate the definitions for a full-time student, half-time student, and three-quarter time student. Those definitions have been moved to §668.2(b).

The definition for a full-time student in a clock hour program was also updated to include a formula for determining full-time status that reflects the new minimum academic year of 26 weeks. Under the proposed language, the number of clock hours required for full-time status would be calculated by dividing the clock hours in the program's academic year by the number of weeks of instructional time in the academic year. Thus, for an academic year defined as 900 clock hours and 26 weeks, a full-time student would be required to complete 35 clock hours per week instead of 24.

Finally, the proposed regulations would more clearly define full-time student in a correspondence course. A full-time student enrolled in a correspondence course would be required to meet all standard definitions for a full-time student found in §668.2(b), and also would be required to enroll in classes where at least half of the coursework is made up of non-correspondence coursework.

School negotiators voiced strong concern about the ramifications of the proposed formula for defining a full-time student in a clock-hour program. While most students enrolled a 900 clock-hour, 26-week program will not have a problem meeting the full-time requirement of 35 hours per week, part-time students would have to take at least 17.5 hours per week in order to be eligible for Title IV HEA funds as a half-time student.

"This will negatively impact a tremendous amount of students who are usually attending school at night after working full-time during the day," said a school negotiator. "It seems that any benefits that this may have will be totally outweighed by how this will negatively affect our part-time students," he added.

Other nonfederal negotiators asked the Department to consider the intent of Congress when it reduced the minimum number of weeks in the academic year for clock-hour programs to 26 weeks. According to the negotiator, the change in the law was designed to help students get through their programs quicker with reduced financial need and to save the taxpayers' money.

"This is flawed logic," said the negotiator who pointed out that if the same principle were applied to credit-hour schools, full-time students would have to take more than the minimum 12 credit hours per term in order to finish their program within 4 academic years.

"The intent of the law was to allow some students to complete quicker, but not to penalize students that are still taking the historically standard amount of time to complete their programs," he concluded.

Students in many clock hour programs also sign contracts with the school. It would create significant problems for schools to rework their existing contracts with currently enrolled students to try to make them attend more hours per week.

School negotiators estimated that more than 40,000 students would be adversely affected by this regulatory change. Besides having to complete an additional 5 ½ hours per week for half-time enrollment status, schools that offer these part-time programs would have to make large amounts of costly accommodations to meet these requirements, which would ultimately be passed on to the student.

The Department responded that schools still have the option to define the academic year as 26 or 30 weeks, and may use different academic year definitions for different programs of study. Schools could use different academic year definitions for different program formats, such as a 26-week academic year for students enrolled full-time during the day and a 30-week academic year for students enrolled part-time during evening programs, Furthermore, schools could even define academic years differently for different cohorts of students enrolled in a program that is offered with multiple start dates. For example, a cohort of students enrolling a cosmetology program that starts in January may have a 26-week academic year, while the next cohort of students that enrolls in and begins the cosmetology program in March may have a 30-week academic year.

Although school negotiators felt that the Department's interpretation would satisfy many of their concerns, they fell short of reaching tentative agreement due to the need for further examination of the draft proposed regulations.

Treatment of Term-Based Programs with Multiple Start Dates for Federal Pell Grants

Currently, eligible programs offered in semesters, trimesters, or quarters, but which do not meet certain other criteria to qualify for Pell Grant Formula 1, must use Formula 3. Formula 3 calculates payments based, at least in part, on the weeks of instructional time in each term. Other criteria that allow use of Formula 1 include offering the terms over a fall through spring academic year calendar and without overlap.

Some schools offer programs in semesters, trimesters, or quarters, but with multiple start dates, such as monthly where students are starting a term each month throughout the year. While these programs still award credits and operate on a standard term schedule, they may also have new groups of students starting classes beginning in January, February, March, etc.

During the first round of negreg, negotiators discussed whether schools could use Formula 1 to award Federal Pell Grants to students enrolled in programs that use an academic calendar consisting of semesters, trimesters, or quarters that do not overlap but have multiple start dates for different cohorts of students. The Department provided draft proposed regulatory language that would permit the use of Formula 1 for students enrolled in these types of programs provided the students remain with the same cohort in which they start the program. A student would be allowed to change cohorts only if the student withdrew or skipped a term, and later re-enrolled in a subsequent term.

Negotiators reached tentative agreement on this issue.

Proration for Pell Grant Payments for Programs Using Clock Hours or Credit Hours Without Terms

In the previous round of negotiations, the negotiators contended that the formula for calculating the payment for a payment period for clock-hour and non-term credit-hour programs results in a double proration of the student's payment period amount. For example, a double proration appears to occur if the payment for a 600 hour clock-hour program is first prorated based on the weeks in the program, and then the result of that calculation is prorated based on the hours in the payment period in relation to the hours in the academic year (300 hours / 900 hours). Negotiators felt that students in career training programs or technical schools are not being treated equitably and should receive the maximum amount possible with only one proration.

The Department offered draft proposed language that would revise the calculation of Pell Grant payments for programs using clock hours or credit hours without terms. Under the proposed regulatory change, the payment for a payment period would be calculated by multiplying the student's Scheduled Award by the lesser of:

Number of credit or clock hours in a payment period /
number of credit or clock hours in the program's academic year

Number of weeks of instructional time required for a full-time student to complete the credit or clock hours in the payment period /
Number of weeks of instructional time in the academic year

The Department cautioned negotiators that portions of the draft proposed regulations still need some work, especially with regard to self-paced programs. Under the proposed language, self-paced programs would be prorated by using number of weeks of instructional time required for a full-time student to complete the credit or clock hours in the payment period based on the schedule a typical student would follow, as described in the institution's catalog, Web site, or other publication.

Two major problems with self-paced programs are determining where the student is in his or her program and accounting for a change in the pace with which the student completes that program. The Department is considering language that would require schools with self-paced programs to provide the Department a schedule that tracks how most of its students are completing its self-paced programs.

While negotiators are pleased that the Department listened to their concerns, some questions still remained. Tentative agreement was not reached on this issue.

Recovery of Funds Not Claimed by Student or Parent

Draft proposed regulations would establish timeframes by which a school must return funds from a credit balance that are deemed undeliverable to the student. If the school issued a check that was not negotiated 180 days after issued or that was returned to the school as undeliverable, the school must immediately return the funds to the Department, the FFEL lender, or the guaranty agency. If a school attempts to deliver funds via electronic funds transfer (EFT) but is unable to do so, the school would be required to try to deliver the funds once more, but with a check.

A nonfederal negotiator objected to the idea that 180 days is a sufficient amount of time to return those funds to the Department because of the myriad actions the institution might be taking to try to find the student and redeliver those funds. The negotiator asked for a deadline of at least one calendar year to provide schools with sufficient time to go above and beyond normal measures to locate the student and to deliver the funds.

Another negotiator asked that beside the one-year allowance, schools also be required to make two attempts to deliver those funds. School negotiators underscored that every effort should be made to get those funds to the student since they do not belong to the school or the Department.

The negotiators did not reach tentative agreement on this issue, but the Department will re-examine the draft proposed regulations.

Electronic Disbursements, Use of Stored-Value Cards, and Issuing a Check

The draft proposed regulations would modify the cash management regulations regarding the payment of Title IV funds. Currently, the school is considered to have issued a check on the date "it released or mailed the check, or notified the student (or parent, in the case of a parent PLUS) that the check is available for immediate pickup. Credit balances must be issued within 14 days of when the credit balance occurred; the date the check is issued determines compliance with this requirement. However, the Department has found instances where schools sometimes tell students that the check is available for immediate pickup, but in reality the check is not printed until a later date. The proposed regulations would stipulate that schools would no longer be able to just notify a borrower that the funds are available for pick-up and would require that schools actually mail or deliver the funds to the borrower.

School negotiators expressed strong concern about the idea that they would be forced to substantially increase the number of checks that are being mailed to students, which would be burdensome to schools as they try and keep track of all of these accounts. Public community colleges and four-year state schools would find it difficult to be in compliance with the proposed new requirement since they are not allowed to issue checks and must submit all check requests to a centralized county or state government office.

The draft proposed regulations also would remove the Title IV requirement that an institution must first obtain a student's authorization to make an electronic funds transfer (EFT), and would modify the disbursement provisions for the use of an EFT. Under the proposed change, the Department would establish in regulation the conditions under which a school may open a bank account for a student or parent. If the institution opens a bank account on behalf of a student, the institution would be required to:

Ensure that the bank account is FDIC insured;
Not make any claims against the funds in the account without the written permission of the student or parent, except for correcting an error in transferring the funds in accordance with banking protocols;
Ensure that its process for opening the account complies with applicable State Law regarding electronic transactions and the Electronic Signatures in Global and National Commerce Act (Public Law 106-229), as amended, particularly with the consent and consumer protection provisions contained in those laws;
Ensure that the student or parent does not incur any cost in opening the account or initially receiving any type of debit card, stored-value card, or other type of ATM card;
Ensure that the student has convenient access to a branch office of the bank or automated teller machines (ATMs) of the bank in which the account was opened, and the student does not incur any cost in making cash withdraws from that office or ATM;
Ensure that the debit, stored-value or ATM card, or other device can be widely used, e.g., the institution may not limit the use of the card or device to particular vendors;
Not market or portray the account, card, or device as a credit card or credit instrument, or subsequently convert the account, card, or device to a credit card or credit instrument; and
Before opening the account, inform the student or parent of the terms and conditions associated with accepting and using the account, card, or device

A student negotiator voiced strong opposition to the idea of institutions moving in the direction of setting up bank accounts for students. "It comes down to consumer protection," said the student negotiator, who wants students to be more involved in the process by setting up their own bank account and actively indicating that they want their money via EFT. The Department held firm that consumer protection would be in place since the student must provide certain account information and his or her explicit approval in order to set up the account and to participate in EFT. In addition, the Department reminded negotiators that the E-Sign Act always gives participants to opt out of the EFT process.

Other nonfederal negotiators expressed support for the proposed regulatory change on the grounds that it would facilitate a more prompt delivery of funds. One negotiator argued that "for every one student that lacks financial literacy skills, there are ten others that are demanding that we move in this direction, or any direction that expedites how we get funds to students."

A small workgroup of nonfederal negotiators have agreed to convene to take a closer look at these proposed regulations and their implications, and to possibly provide the Department with alternative language.

Definition of Excess Cash and Excess Cash Allowances

The Department proposed draft regulatory language would modify the definition of excess cash to include not only any Title IV funds received from the Department, but also previously disbursed Title IV funds that an institution deposits or transfers into its federal account. The proposed regulations also would simplify the excess cash requirements by eliminating the excess cash tolerances currently outlined in CFR 668.166(b).

A school negotiator argued that elimination of the tolerances would create problems for public institutions that have a central office that draws down and returns funds for all schools in the state or county system. Furthermore, the enrollment patterns of students attending community colleges are another impediment to complying with the proposed excess cash requirements. Negotiators thought it would best to retain a small excess cash tolerance. Schools argued that if the provision wasn't being abused, it would not make sense to take away a provision that helps schools retain funds that ultimately could be expedited when funds are awarded to students. Negotiators asked the Department to gather more information from the financial aid community at large to determine what kind of impact these changes would have.

Negotiators did not reach agreement on this issue.

Late, Late Disbursements

Proposed regulations would eliminate the late, late disbursement provision which allows, under certain conditions and with the Department's approval, the disbursement of Title IV funds to a student more after the 120-day period for making a late disbursement. School negotiators were against removing this provision because at some schools student populations tend to file for aid very late, and if a late application is selected for verification, 90 of the 120 days can be lost to that process. Others argued that it is wrong to penalize a student because of a school error. Another negotiator, acknowledging that schools should be accountable for the timely disbursement of funds and students should accountable for ensuring that their bills are paid, asked whether the regulations should be amended to provide a cutoff date for late, late disbursements instead of elimination of the provision.

Negotiators did not reach agreement on this issue and the Department is expected to re-examine the proposed regulatory language.

Single Disbursement Provision for Perkins and FSEOG

The draft proposed regulations would allow a single disbursement of Federal Perkins Loan and FSEOG funds awarded for an academic year. The Department again assured negotiators that this would not interfere with their ability to "front-load" disbursements from these two programs when a borrower has uneven costs or resources for a single payment period. Negotiators came to a quick tentative agreement on this issue.

Post-withdrawal Disbursement

The Department's draft proposed regulations would no longer require schools to obtain a student's confirmation prior to making a direct post-withdrawal disbursement of any grant funds that the student earned for the period in which he or she withdrew. The school still would be required to notify the student and offer to make a direct disbursement of any funds, including grant funds, which it does not credit to the student's account; however, it would not be required to wait for the student to confirm that he or she wants the grant funds before disbursing the grant funds.

Negotiators reached a tentative agreement on this issue.

Minor Prior-Year Expenses

The proposed regulations would modify the cash management regulations regarding the use of current year Title IV funds to pay prior award year charges. Under the proposed changes, an institution would be able to use, without receiving the student's (and the parent's in the case of a parent PLUS) permission,, current-year Title IV funds to pay prior-year charges for tuition, fees, and institutionally-contracted room and board, as long as those charges are less than $100. In addition, the school would be allowed, with the appropriate authorization, to use current year funds to pay minor prior year charges for educationally-related activities if those charges are less than $100 or the payment of those charges does not, and will not, prevent the student from paying current educational costs.

Several school negotiators asked the Department to consider raising the $100 limit to $300 since institutional charges for tuition, fees, room, and board have increased since this provision was originally drafted. The Department agreed to examine whether the $100 threshold should be increased, but reminded negotiators that regardless of whether a school obtains a students permission, Title IV HEA funds are for current year expenses. Furthermore, this provision specifically talks about minor prior-year expenses. The Department agreed to revisit this proposed regulatory language prior to the next round of negotiations.

Next Meeting Scheduled For April

The next round of negregs for General Provisions is scheduled for mid April in Washington, D.C. NASFAA encourages members to examine the discussions contained in this article and the proposed regulations to provide feedback to us at GovtAffairs@nasfaa.org.

By Justin Draeger
NASFAA Assistant Director for Communications

By Eileen Welsh
NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance

Posted 03/21/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.